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Releasing orders

20/2/2015

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One of the jobs credit controllers spend a lot of time doing is “releasing orders”. In fact it is a task that is not even questioned anymore because it is so much part of the working day. Well I am going to question it! Why are you doing it? The only reason an account should go on hold is if the customer is either over the credit line set for the account or they are exceeding the number of days permitted. For each class of customer, depending on the risk category, you should build in a tolerance level showing how many days beyond terms you are prepared to let the customer go before you stop supplies or withhold service.

So, if these rules are being applied, the job of the credit controller should either be to review the amount of the line of credit, the customers risk category or the tolerance allowed.

If this important task is not completed on a daily basis in favor of releasing individual orders, then the problem will persist and what is even worse, the number of orders will eventually get out of control.

The function of management is to ensure that proper controls are in place and in my experience this is not always the case. In fact some don’t even keep logs of what orders were released or why. Anytime you constantly override your system you are losing control.

To maintain control of your exposure you have to have rules and stick to them. Of course there is a need for some flexibility in certain circumstances and credit control usually involves applying common sense in every situation. There are good reasons and downright lies and the role of the Credit Professional is to be able to differentiate between.  

It is only when things go wrong, when a business closes or a company goes into liquidation that the senior management comes looking for answers and explanations.  If an account goes with a balance exceeding the signed off line of credit then all concerned have very serious questions to answer.

My advice for what it is worth, spend less time dealing with the symptoms of a problem by constantly releasing orders and more time tackling the root cause and making better decisions every time. The alternative can be very expensive.       

 

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Creating excellent internal communications so all are working to the same agenda.

13/2/2015

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The credit department is well placed at the centre of your organisation to ensure your internal communication processes are working. Every time there is a breakdown it will show up in the form of a customer query or an unpaid invoice. Rather than being viewed as a problem, every issue should be seen as an opportunity to review what was done or in most cases what hasn't been done and you can identify what changes need to be put in place to ensure that this never happens again.

Customer contacts and queries must be viewed in a positive light everyone in your organisation must be bought into the idea of keeping your customers happy. This is why every single instance and every single query must be taken seriously and responded to quickly, whether it is justified or not. Your unjustified queries came about by a miscommunication somewhere, and even these should be investigated thoroughly and you should communicate with your customer the result of your findings and you should explain how the query has been dealt with, and if the result is not as they were expecting extra care should be taken.

If you are in a service business you should encourage the service providers within your organisation to be aware of your billing cycles and every invoice should be expected and agreed in advance, especially if you are billing on a stage payment basis.

If you are supplying goods the invoice should be raised on the basis of what was delivered, not on what was dispatched, and if there was a short delivery, you should check with your customer if they still require the goods if they were left short on an order.

Everyone in your organisation must play their part in delivering excellence from the sales rep to the store man, from the marketing executive to the account manager, everyone should be brought through your administration procedures right at the start, you must explain exactly what is expected and when, and exactly what they must do at every stage. Failure to deliver on this will cause untold problems for you and will damage your reputation in the market.

You should keep a query log and this should be discussed with all the relevant people on a weekly basis, you should have a credit note analysis to understand what is going wrong, you should log your customer calls, particularly complaints, not because you want to focus on the negative, but to fully understand what is going wrong and what you have to do to resolve it.

Every overdue amount on your ledger is there for a reason, a properly trained and motivated credit team will get to the bottom of every single issue and use it as a learning tool for the future.

Reports should be concise and geared for the audience that is going to read and action them, you must get Board approval and buy in and it is the job of the credit team to explain the importance of this vital function to everyone.

In today’s competitive market anything short of excellence is not good enough.  

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The Legal System

6/2/2015

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In Ireland we have an excellent system for collecting debts and like everything else it works when it is used correctly. There are many misconceptions and some practices that should be improved. The whole system could be improved and in particular the use of the small claims court for debt collection and the ability of individuals and companies to handle the paperwork for all undefended judgments without the need for a legal firm to get involved in what is mainly an administrative process would be good for starters. For the purpose of this article we will concentrate on the system we have and how it works from start to finish. Forgive me if you know most of this stuff already I am writing for the benefit of the person who has little or no knowledge of the current system.

If you have done everything in your power to collect a debt, if there is no reason you are aware of why the amount hasn’t been paid, or sometimes when there is, if the customer is not engaging with you in a meaningful way, i.e. making payment, there are times you have to make a hard decision whether to go down the legal route or to simply write the debt off completely.

As simple as this choice may seem, there are times when it is cheaper and easier to write the balance off, particularly in cases where the other party simply has no way to pay the amount in question. Once you have established that the money is due and owing, you know the exact legal entity you are trading with, ideally you have the necessary back up documentation, including copy invoices, signed dockets and a record of all the activity that took place since the account became overdue and you are satisfied that there are sufficient funds available to pay the amount in full, including interest and fees and that the relationship is beyond repair and you have no intention of doing business with them again, then the sooner you issue proceedings the better.

The court you sue in is determined by the amount outstanding, The District Court hears cases up to €15,000, The Circuit Court up to €75,000 and there is no limit in the High Court.

Each court has its own rules and vagaries and I have lots of information on the specific processes if you want to find out more, just let me know. There are also some common ground: If you are successful each court will issue a Judgment, this is simply a piece of paper that says the court accepts that the debt is due and owing, it is worthless unless you do something with it. Your options include:

1.       Register the Judgment for publication – it will appear in Stubbs and be on the public record, and as a result will have a negative impact on their credit rating.

2.       Lodge with the local Sheriff, who has power to seize goods to the value of the Judgment

3.       Register the Judgment as a charge against property owned by the company or individual. You can then enforce your mortgage through the sale of the property in question. The reality right now is that no judge would enforce the sale of a family home for the settlement of a debt.

4.       In the case of an individual you can get an Instalment Order, which if it isn’t honoured can lead to committal to prison. It is important to understand that the Instalment Order is an Order of the Court, if the person fails to pay the instalments in accordance with the Order, they are in contempt of court. This is why they go to jail – not for the debt itself.

There are many other remedies, one final point if you are dealing with another business you are entitled to add on Late Payment interest and Admin charges to the account before you take proceedings and the amount should be included in the amount claimed, you are entitled to court interest of 8% on all amounts due from the date of the judgment. Hope this helps your understanding and make sure you get details of what it is going to cost you before you engage any legal firm.


 

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    Author Declan Flood

    Lifelong Credit Professional dedicated to improving the standard of credit.

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